The Long Depression: How It Happened, Why It Happened, and What Happens Next : Michael Roberts, Book Review by Thomas Sebastian

THERE was a cheer on social media when Iceland put 26 of their top bankers in prison for crimes ranging from insider trading to fraud, money laundering, misleading markets, breach of duties and lying to the authorities, as the Great Recession has been associated 384 Capital & Class 41(2) with the greed of the bankers. The Independent wondered why we can’t do the same in the United Kingdom (Birrrell 2015). The authorities in the United Kingdom were in no mood to listen to such questions as they were busy filling the coffers of banks by offering them monies at near zero interest rates for in their opinion it is the lack of greed that has been delaying the recovery.

These contradictory prognoses confuse only the uninitiated. For whenever there is a recession or depression, there is neither a consensus on the causes nor how to get out of it among the experts. The reason is simple; these experts are looking for explanations in the wrong places. They are to be found not in the mind of this greedy banker or that exploitative CEO or in the lack of effective demand caused by an unpredictable shock, but rather in the law of motion of capital – that is, in the tendency of the rate of profit to fall. This is the point that Michael Roberts convincingly establishes in The Long Depression.

As the recession persisted, experts compared it with the Great Depression of 1929–1940, and called it ‘The Great Recession’ as this was the longest among the 18 recessions that have been identified by the National Bureau of Economic Research (NBER) since the end of World War II (WWII). In its intensity and length, this recession is to be compared with the Great Depression of late 19th century (1874–1897) and the Great Depression of mid-20th century (1929–1940). In Roberts’ view, one can only say the economy has recovered if a pre-crisis level/long-run trend of growth is restored. To put it concretely, that means 3% per annum growth is restored in advanced countries. Roberts predicts we may have to wait until 2018 to reach that level.

Marx had proposed that the tendential law of falling rate of profit thanks to the increasing organic composition of capital (c/v), will lead to the ultimate breakdown of capitalism. Being a tendency, there are also counter tendencies and Marx mentioned five of them: (1) the increasing intensity of exploitation, which could increase the surplus value; (2) the relative cheapening of the elements of constant capital; (3) the deviation of the wage rate from the value of labour power; (4) the existence and increase of a relative surplus population; and (5) the cheapening of consumption and capital goods through imports. Marx had neither the time nor the facilities to examine the data related to these tendencies to clinch the argument. Michel Roberts and a number of researchers of Marxist persuasion were able to test these tendencies and find that the propositions have stood the test of time and help us to predict economic events like recession/depression. On the causes of the first great depression of 1884–1897 and the second one of 1929–1940, the author finds that the rate of profit was falling and the organic composition of capital was rising. Recovery from the second great depression occurred only after enough capital was destroyed so that the remaining capital’s profitability began to rise once war production began with the break out of the Second World War.

However, from the mid 1960s, we have again seen a fall in profitability as the organic composition of capital has risen thanks to increased mechanization and investment in new industries. The response to this crisis was to have anti-labour reforms, privatization, cuts in government services and pensions, a lowering of taxes on the corporate sector, and the deregulation of the financial sector. During this neoliberal period, capital was able to increase profitability at the expense of labour, ensuring that the organic composition failed to rise in many economies. Yet problems of profitability returned in 1997 and capitalists responded by turning away from the manufacturing sector and towards the financial sector. This can be noted from the huge rise in debt witnessed with the growth of fictitious capital – bank loans, securitized debt and derivatives – which rose from 150% of the GDP in 1990 to 350% of the GDP in 2011.

The great recession began in August 2007 when Bank Paribas closed down its mortgage branch. This was soon followed by many other failures of banks and financial institutions. The neoclassical branch of the mainstream economics calls it a ‘black swan’ event, something that we know only when it happens. The Keynesians put it down to the lack of effective demand caused by the hoarding of money. Another reason put forward was the excessive risk taken by the financial sector, facilitated by the liberalization of this sector, which boosted the greed of the bankers that in turn took many forms. Post-Keynesians put the blame on the restricted income of the poor, which resulted in increased inequality, and that financial deregulation caused a profit-led economy rather than a wage-led one. Minsky’s claim that the financial sector is inherently unstable also found a revival. Booms bring financial instability to the fore. The Global GDP loss due to the Great Recession is estimated to be 22%. Major economies have been experiencing growth of 1% to 2% per annum instead of the 2% to 3% per annum before the recession. So is the growth in global trade, which grew at double the rate of growth of the world GDP. The International Monetary Fund (IMF) reported that business investment in advanced countries was lower by 14% between 2008 and 2014 compared with 2007. Global productivity growth has remained stuck at 2.1% compared with the recent average of 2.6%. Roberts thinks the growth will be restored to the pre-crisis level by 2018. In short, economies have not recovered yet.

We are in a Long Depression and that makes the present period comparable to the earlier depressions in terms of length. It is in Chapter 12 that Roberts elaborates various cycles and puts forward his basic

proposition that this recession is also caused by the tendency of the rate of profit to fall. The various cycles are an inventory cycle that takes place once every 4 years; a business cycle that completes once every 8–10 years; a construction cycle, also known as the Kuznets cycle, that completes once every 18 years; and finally the Kondratiev cycle that takes place once every 50–70 years. The author proposes that a depression comes along at a point when all the cycles are in a certain conjunction, that is, they are all in a downwards phase. This conjunction can happen only once every 50–70 years. The conclusion: the great recession happened when various waves came together in conjunction. There are also other cycles identified recently, for example, Anwar Sheikh has identified profit cycles with 17-year ups and downs. After the war, the rate of profit rose during the golden age of capitalism to 1965 and then it fell to 1985. It started to rise again thanks to neoliberal reforms from 1985. From 1997, the economies are in the down wave phase of the profitability cycle leading to the Great Recession/Depression. Data suggest that the profit cycles are guided by Marx’s law of the tendency of the rate of profit to fall and counter tendencies. Even if the global economy recovers, the prospects for its future are not very bright as global capitalism has thrown up new contradictions in the 21st century. The author identifies a number of these roadblocks for the existence of global capitalism. 386 Capital & Class 41(2) Profitability is the best indicator of an economy’s health. There has been effort to estimate the global rate of profit and the organic composition of capital by a number of researchers including Roberts. All estimates show a fall in the rate of profit. One way to maintain profit-ability is to incorporate unexploited labour into global capitalist exploitation. There is huge labour force in Africa still untouched. It is growing in China and India.

Globalisation was the answer to the falling rate of profit in the advanced countries, which led to the shifting of manufacturing to the less developed countries. Now that it has exhausted its possibilities, some argue that it may return to the developed countries through the manufacturing revolution. Some studies show that 47% of the work done now can be undertaken by computers. Most of the jobs disappearing are manufacturing ones. The mainstream view is that it is good on balance as this would imply less toil and more leisure.

If robots are introduced, the value that labour can add to the product goes on declining. For accumulation to continue, there should be profit, and profit comes from surplus value; since surplus value comes from surplus labour and we see declining labour participation as a result of the introduction of robots, accumulation will come to a stop. Another blockage obstructing the expansion of capital is climate change. Some writers think climate changes will bring capitalist growth to a close by 2040.

Capitalism is in a long depression. It has come about not because of a lack of demand as Keynesians have argued, but because of a fall in profitability. Profitability can recover only after further devaluation of the existing capital – that is, following another recession. The robotic revolution, moreover, will only exacerbate the situation rather than easing it.

Only a new system can save humanity from barbarism and this need to come through the conscious effort of human beings. We have the example of the Roman Empire before us, the author tells us. The empire that rose out of the labour of peasants rose over 500years then declined under slavery; the technology that they had developed went unused and the European world fell into barbarism. That could happen again. I have no doubt that this study is a major contribution to the study of the working of capitalist economies. Hence, it should become part of the compulsory reading for students of economics. Any teacher of macroeconomics knows

that students are unhappy with being consistently provided with the neoliberal view of everything. They crave an alternative view. This book provides an alternative and realistic perspective that allows us to look at economic phenomenons in a new framework and thus to participate in social life more intelligently.